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ACC 556 FINAL EXAM PART 1 AND 2

ACC 556 FINAL EXAM PART 1 AND 2

PART 1

Question 1
A budget can be used as a basis for evaluating performance.
 True
 False
Question 2
A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.
 True
 False
Question 3
The current cash debt coverage ratio is considered a better representative of liquidity than the current ratio because it involves the entire year rather than a balance at one point in time.
 True
 False
Question 4
Bonds with a face value of $400,000 and a quoted price of 104¼ have a selling price of
 
    $417,000.
 
    $416,100.
 
    $401,700.
 
    $416,000.
Question 5
One objective of the income statement is to separate the results of continuing operations from those of discontinued operations.
 True
 False
Question 6
Intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets without physical substance.
 True
 False
Question 7
On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $75,000. What is the depreciation expense for year 2 under straight-line depreciation?
 
    $15,000.
 
    $45,000.
 
    $12,000.
 
    $36,000.
Question 8
During 2014, Phelps Corporation reported net sales of $3,000,000, net income of $1,320,000, and depreciation expense of $80,000. Phelps also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Phelps’s asset turnover ratio is
 
    1.5 times.
 
    1.2 times.
 
    2.0 times.
 
    2.4 times.
Question 9
Cash dividends are not a liability of the corporation until they are declared by the board of directors.
 True
 False
Question 10
The debt to assets ratio measures the percentage of the total assets provided by creditors.
 True
 False
Question 11
A master budget is most useful in evaluating a manager’s performance in controlling costs.
 True
 False
Question 12
All of the following are true regarding financial statement analysis ratios associated with liabilities except
 
    a high times interest earned ratio indicates that a company is more likely to meet interest payments as scheduled.
 
    high liquidity ratios mean that lines of credit should be high to compensate.
 
    if a company’s current ratio is lower than the industry average, then it may lack liquidity.
 
    unrecorded obligations causing sizeable differences between liquidity and solvency ratios can be ignored.
Question 13
A current liability is a debt that can reasonably be expected to be paid
 
    within one year, or the operating cycle, whichever is longer.
 
    between 6 months and 18 months.
 
    out of currently recognized revenues.
 
    out of cash currently on hand.
Question 14
The master budget reflects management’s long-term plans encompassing five years or more.
 True
 False
Question 15
A company whose current liabilities exceed its current assets may have a liquidity problem.
 True
 False
Question 16
The book value of a plant asset is the difference between the
 
    replacement cost of the asset and its historical cost.
 
    cost of the asset and the amount of depreciation expense for the year.
 
    cost of the asset and the accumulated depreciation to date.
 
    proceeds received from the sale of the asset and its original cost.
Question 17
The market rate of interest is often called the
 
    stated rate.
 
    effective rate.
 
    coupon rate.
 
    contractual rate.
Question 18
Accountants do not attempt to measure the change in a plant asset’s market value during ownership because
 
    the assets are not held for resale.
 
    plant assets cannot be sold.
 
    losses would have to be recognized.
 
    it is management’s responsibility to determine fair values.
Question 19
Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.
 True
 False
Question 20
Which of the following is not properly classified as property, plant, and equipment?
 
    Building used as a factory.
 
    Land used in ordinary business operations.
 
    A truck held for resale by an automobile dealership.
 
    Land improvement, such as parking lots and fences.
Question 21
A corporation is not an entity that is separate and distinct from its owners.
 True
 False
Question 22
Budget reports provide the feedback needed by management to see whether actual operations are on course.
 True
 False
Question 23
Vertical analysis is a technique for evaluating a series of financial statement data over a period of time to determine the increase (decrease) that has taken place.
 True
 False
Question 24
Under the corporate form of business organization
 
    a stockholder is personally liable for the debts of the corporation.
 
    stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
 
    the corporation’s life is stipulated in its charter.
 
    stockholders wishing to sell their corporation shares must get the approval of other stockholders.
Question 25
On January 1, 2014, Ermler Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is
 
    Current liabilities, $1,000,000.
 
    Long-term debt , $1,000,000.
 
    Current liabilities, $500,000; Long-term Debt, $500,000.
 
    Current liabilities, $250,000; Long-term Debt, $750,000.

PART 2

Question 1
Zoum Corporation had the following transactions during 2014:
 
1 – Issued $125,000 of par value common stock for cash.
2 – Recorded and paid wages expense of $60,000.
3 – Acquired land by issuing common stock of par value $50,000.
4 – Declared and paid a cash dividend of $10,000.
5 – Sold a long-term investment (cost $3,000) for cash of $3,000.
6 – Recorded cash sales of $400,000.
7 – Bought inventory for cash of $160,000.
8 – Acquired an investment in Zynga stock for cash of $21,000.
9 – Converted bonds payable to common stock in the amount of $500,000.
10 – Repaid a 6 year note payable in the amount of $220,000.
 
What is the net cash provided by operating activities?
 
    $305,000.
 
    $290,000.
 
    $240,000.
 
    $180,000.
Question 2
A critical factor in budgeting for a service firm is to
 
    hire professional staff to perform the budgeting work.
 
    coordinate professional staff needs with anticipated services.
 
    classify all personnel as either variable or fixed.
 
    budget expenditures before anticipated receipts.
Question 3
Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%.
 
Sales                                                 $ 1,400,000
Controllable margin                                  160,000
Total average assets                             4,000,000
Fixed costs                                              100,000
 
What is the ROI for the year?
 
    4%
 
    35%
 
    6%
 
    1.5%
Question 4
Laser Performance Inc. has the following information available (amount in thousands).
 
Net Income                                                     $30,000
Average Total Liabilities                                   80,000
Average Current Liabilities                               36,000
Cash Provided by Operations                          48,000
Cash Sales                                                     130,000
Capital Expenditures                                        22,000
Dividends Paid                                                   6,000
 
What is the current cash debt coverage?
 
    1.333 times.
 
    .600 times .
 
    .833 times .
 
    .369 times.
Question 5
The single most important output in preparing financial budgets is the
 
    sales forecast.
 
    determination of the unit cost of the product.
 
    cash budget.
 
    budgeted income statement.
Question 6
A manager of a cost center is evaluated mainly on
 
    the profit that the center generates.
 
    his or her ability to control costs.
 
    the amount of investment it takes to support the cost center.
 
    the amount of revenue that can be generated.
Question 7
If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
 
    decrease total assets and total stockholders’ equity.
 
    increase stockholders’ equity and to decrease total liabilities.
 
    decrease total retained earnings and increase total liabilities.
 
    reduce the amount of retained earnings available for dividend declarations.
Question 8
Which one of the following items is not necessary in preparing a statement of cash flows?
 
    Determine the change in cash.
 
    Determine the cash provided by operations.
 
    Determine cash from financing and investing activities.
 
    Determine the cash in each of the bank accounts.
Question 9
Which of the following is not typically a characteristic experienced by a company during the growth phase of the corporate life cycle?
 
    Cash from operations on the statements of cash flows will be less than net income on the income statement.
 
    Collections on accounts receivable will lag behind sales.
 
    Cash from investing is positive.
 
    Cash from financing is positive.
Question 10
Which one of the following is not a benefit of budgeting?
 
    It facilitates the coordination of activities.
 
    It provides definite objectives for evaluating performance.
 
    It provides assurance that the company will achieve its objectives.
 
    It requires all levels of management to plan ahead on a recurring basis.
Question 11
A flexible budget
 
    is prepared when management cannot agree on objectives for the company.
 
    projects budget data for various levels of activity.
 
    is only useful in controlling fixed costs.
 
    cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.
Question 12
The date on which a cash dividend becomes a binding legal obligation is on the
 
    declaration date.
 
    date of record.
 
    payment date.
 
    last day of the fiscal year end.
Question 13
Holden Packaging Corporation began business in 2014 by issuing 80,000 shares of $5 par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2014 balance sheet, Holden Packaging would report
 
    Common Stock of $800,000.
 
    Common Stock of $400,000.
 
    Common Stock of $640,000.
 
    Paid-In Capital of $600,000.
Question 14
Which of the following income statement figures would probably be the best indicator of a company’s future performance?
 
    Total revenues
 
    Income from operations
 
    Net income
 
    Gross profit
Question 15
Ratios are used as tools in financial analysis
 
    instead of horizontal and vertical analyses.
 
    because they can provide information that may not be apparent from inspection of the individual components of the financial statements.
 
    because even single ratios by themselves are quite meaningful.
 
    because they are prescribed by GAAP.
Question 16
Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?
 
    $416,000
 
    $84,000
 
    $584,000
 
    $512,000
Question 17
The primary purpose of the statement of cash flows is to
 
    provide information about the investing and financing activities during a period.
 
    prove that revenues exceed expenses if there is a net income.
 
    provide information about the cash receipts and cash payments during a period.
 
    facilitate banking relationships.
Question 18
A master budget consists of
 
    an interrelated long-term plan and operating budgets.
 
    financial budgets and a long-term plan.
 
    interrelated financial budgets and operating budgets.
 
    all the accounting journals and ledgers used by a company.
Question 19
If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?
 
    350,000 pounds
 
    530,000 pounds
 
    290,000 pounds
 
    470,000 pounds
Question 20
Cochran Corporation, Inc. has the following income statement (in millions):
COCHRAN CORPORATION, INC.
Income Statement
For the Year Ended December 31, 2014

Net Sales                                         $240
Cost of Goods Sold                             80
Gross Profit                                        160
Operating Expenses                            65
Net Income                                      $  95
 
Using vertical analysis, what percentage is assigned to net income?
 
    100%
 
    60%
 
    40%
 
    33%
Question 21
Assume the following sales data for a company:
 
2015                         $910,000
2014                         $770,000
2013                           700,000
 
If 2013 is the base year, what is the percentage increase in sales from 2013 to 2014?
 
    130%
 
    110%
 
    30%
 
    10%
Question 22
The following information pertains to Marsh Company. Assume that all balance sheet amounts represent average balance figures.
 
Total asset                                                         $400,000
Stockholders’ equity—common                           200,000
Total stockholders’ equity                                    280,000
Sales revenue                                                      120,000
Net income                                                             25,000
Number of shares of common stock                        8,000
Common dividends                                                  9,000
Preferred dividends                                                 6,000
 
What is Marsh’s payout ratio?
 
    60%.
 
    36%.
 
    24%.
 
    7.5%.
Question 23
All of the following statements regarding changes in accounting principles are true except which of the following?
 
    Most changes in accounting principles are only reported in current periods when the principle change takes place.
 
    Changes in accounting principles are allowed when new principles are preferable to old ones.
 
    Most changes in accounting principles are retroactively reported.
 
    Consistency is one of the biggest concerns when a change in accounting principle is undertaken.
Question 24
On the basis of the budget reports,
 
    management analyzes differences between actual and planned results.
 
    management may take corrective action.
 
    management may modify the future plans.
 
    All of these.
Question 25
A comparison with other companies that provides insight into a company’s competitive position is most commonly known as which of the following types of comparisons?
 
    Industry average comparison
 
    Intracompany comparison
 
    Intercompany comparison
 
    Comprehensive income comparison

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